Duty Exemption and Remission Schemes: Objectives, Types & Benefits

India exports a wide range of commodities, such as engineering goods, petroleum products, pharmaceuticals, and ready-made garments, to 200 countries. The export business was valued at over $430 billion in 2025. Overall, exports of goods and services account for 23% of the country’s GDP. The government introduced duty exemption and remission schemes to increase the overall growth in exports and foreign reserves.

Objectives of the Scheme

The primary goal of any duty exemption and remission scheme was to eliminate or refund customs duty paid on goods ready for export. This improves profit margin for exporters, thereby encouraging domestic industrial production and job creation. These schemes have helped India become the preferred manufacturing hub globally.

Types of Duty Exemption and Remission Schemes

Duty Exemption Schemes

1. The Advance Authorisation Scheme (AAS) allows the duty-free import of raw materials used to produce exported goods. The scheme extends its coverage to basic raw materials and inputs, such as fuel or oil used in the production process of exported goods. Under this scheme, the exporter has to export the goods produced from the imported goods within 18 months, which can be further extendable. Exporters are exempted from basic customs duty and IGST at the time of import.
2. Duty Free Import Authorisation (DFIA) is similar to the advance authorisation scheme. The only difference is that under DFIA, since the exporters are not obligated to export the goods, the licence under this scheme is issued after export is completed. Under DFIA, the exporter is exempt from payment of basic customs duty. This scheme covers only those products guided under standard input-output norms but specifically does not cover the gems and jewellery sector. This licence is also transferable to other exporters as well.

Duty Remission Schemes

1. The Duty Drawback (DBK) Scheme refunds customs duties paid on inputs used for the manufacture of exported goods after the export is completed. Such a refund is calculated based on predetermined industry rates.
2. The Scheme for Remission of Duties and Taxes on Exported Products (RoDTEP) aims to reimburse other taxes that are not covered under the above schemes. For example, if excise duty or local taxes is paid on fuel used for production, then such taxes will be refunded under this scheme.

Eligibility Criteria for Exemption and Remission Schemes

The eligibility criteria under each scheme are discussed below:

1. Advance Authorisation Scheme requires exporters to manufacture or obtain goods from a manufacturer. Exporters must have a minimum two years of export performance. There should be a minimum value addition of 15% in the exported goods.
2. Under Duty-Free Import Authorisation (DFIA), merchant exporters must mention supporting manufacturer details on export documents. The exported goods should add a minimum value of 20%. Such an export must be completed within 12 months from the date of application.
3. Under the Duty Drawback Scheme, an exporter must have paid customs duty or any local taxes on its inputs used in the manufacturing process. Accordingly, the scheme calculates refunds based on rates determined by industry-wide norms.
4. For the RoDTEP scheme, an exporter must be registered with DGFT (Director General of Foreign Trade). The exporter must submit the required documents (such as invoices of raw material or transportation costs) to claim those taxes, which are not refunded under any other scheme.

Key Features and Benefits

The main objective of the duty exemptions and remission scheme under the Customs Act is to save significant costs for manufacturers engaged in exports and merchant exports by exempting customs duty and other taxes. This improves the working capital management of the manufacturers, and thereby, exporters can provide competitive rates in international markets.

This scheme provides duty relief at the time of import of raw material and grants industry-specific duty drawbacks in some instances.

Procedures and Documentation Across Schemes

Advance Authorisation Scheme

1. An exporter needs to apply on the DGFT portal, stating the details of inputs and export products, along with input-output norms preferably issued by an engineer.
2. DGFT shall issue a licence after verifying the documents. Then, the exporter shall complete the export within the stipulated period of time.
3. The exporter shall provide an application under this scheme, input-output norms, export order, certificate of Importer Exporter Code (IEC) and bill of entry for imports.

Duty-Free Import Authorisation

1. A manufacturer must first check whether its product is eligible under standard input-output norms and then file an application to DGFT.
2. The application under the DFIA must include the following documents: export invoices, bank remittance certificates, and IEC certificates.

Duty Drawback Scheme

1. An exporter must file an application for a drawback refund along with the following documents: a shipping bill, export invoice, export duty payment proof, bank remittance certificate, or letter of credit.
2. Upon inspection of the above documents, the customs authorities shall process a refund based on predetermined industry rates.

Penalties for Non-Compliance

An exporter who fails to fulfil the export obligation within the stipulated time period or does not achieve minimum value addition under schemes such as advance authorisation or DFIA shall be liable to a penalty of five times the difference between the CIF value of imported goods & export obligation value. In addition, the exporter shall pay applicable customs duty and interest corresponding to the shortfall.

For example, if a company imported raw materials under the duty exemption scheme, it would save Rs 25 lakhs due to the exemption available. Assuming the company is liable to export goods worth Rs 1.5 crores within 5 years, and it can export only Rs 1 crore, then the following penalties may apply:

1. Penalty for shortfall: Rs 2.5 crores [(Rs 1.5 crores - Rs 1 crores) x 5] 
2. Customs Duty: 50 lakhs x 30% = 15 lakhs
3. Applicable interest if payment is effected after the due date.

The above example demonstrates how a default in export obligations can hugely impact the financial health of an exporter.